Significant capital expenditure will be needed to meet the future needs of Aurora Energy - and it could be a challenge for the Dunedin City Council to access all of the necessary money, advisers say.
"Failure to support Aurora Energy’s capital requirements will have implications on service quality and the ability of Aurora Energy to meet customer needs," consultancy Mafic said today.
Aurora is forecasting capital expenditure to remain elevated over the next decade. About $1.1 billion could be needed out to 2034.
It is one of the key issues, as the Dunedin City Council considers selling the electricity distribution company. The council has escalating debt of its own.
A council workshop was due to start at 10am today, which was also when an embargo was lifted on a series of slides.
The workshop is being held after Dunedin City Holdings Ltd (DCHL) requested an opportunity to respond to public feedback about the proposed sale.
DCHL has said the case for a sale is compelling but public sentiment has been firmly against this.
Aurora is part of the council's DCHL group of companies.
The group sought independent advice, which is being presented at the workshop this morning.
Included is a report by Toby Stevenson and Matthew Williamson, of Sapere. They looked into the regulatory environment and how this affected consumers.
There was no scope for Aurora to raise lines charges beyond what was allowed by the Commerce Commission, Sapere said.
The possibility of Dunedin customers having their lines charges hiked more than other areas - such as Queenstown and Central Otago - came up at a public hearing in May.
Sapere said the scope for Aurora to rebalance lines charges among customer groups was confined to a judgement on the allocation of costs between consumer groups.
"The Electricity Authority’s distribution pricing principles and active reform programme protect against cross-subsidy of lines charges between consumer groups."
Scope to defer maintenance or under-invest was limited by disclosure requirements and reputational risk, the consultancy said.
Quality and reliability standards set by the Commerce Commission reduced the risk of electricity distribution businesses seeking to increase profits by cutting costs and compromising quality, it said.
Sapere said under-investment in the network in the past 25-30 years up until 2016 had been the root cause of capital spending catch-up that was continuing now.
"The regulatory framework has evolved such that a decline in quality standards would be picked up more quickly, and the consequences felt more quickly, than was the case in 2016."
Aurora was dealing with "fixing, upgrading and maintaining its network after years of under-maintenance and under-investment".
Sapere said Aurora's owner would have to be more "far-sighted" than would normally be the case.
Consumers could be "better off with another party" if the council and DCHL did not have the resilience required to get through the coming years, it said.
